CA Foundation · Business Economics · Theory of Production and Cost
A firm's labour input rises from 7 to 8 workers. Average product at 7 workers is 30 units and marginal product of the 8th worker is 22 units. Which statement is correct about average product (AP) at 8 workers?
Average product falls to 29 units. Total product at 7 workers is 210, and adding 22 gives 232 for 8 workers, so average is 29. Because marginal product is below the existing average, the average is pulled down.
- AAP rises to above 30 because MP is positive
- BAP stays at 30 units
- CAP is 26 units
- DAP falls to about 29 units, as 8th worker's MP is below the old APCorrect
Explanation
TP at 7 workers = 7 × 30 = 210. TP at 8 = 210 + 22 = 232, so AP = 232/8 = 29. Since MP (22) is below AP (30), AP falls. Option 3 (26) wrongly averages 30 and 22 instead of weighting by workers.
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